Some of the loudest buzz that I heard circulating in Toronto this week -- while attending the annual mining-industry conference hosted by the Prospectors and Developers Association of Canada -- surrounded the outlook for supply constraints in the zinc market to fuel a positive long-term price environment for this often-overlooked base metal. Not only does is zinc used to galvanize steel to prevent corrosion, it also galvanizes the bullish investment outlooks for some diversified miners.
Combined with widespread bullish outlooks for copper and precious metals, anticipated strength from zinc could render HudBay Minerals
Speaking of triples, HudBay revealed this week that it tripled its fourth-quarter earnings for 2011 to $0.21 per share. Operating cash flow surged 42%, to $52.2 million, as the company achieved its full-year production targets for the fifth consecutive year. HudBay's average cash cost for copper production came in at a very respectable $1.44 per pound for 2011. That's a co-product cost, meaning it does not count zinc and precious-metal revenue as an offset. As such, it is not directly comparable to the $1.01-per-pound cost that has my colleague Jim Mueller vocally pumped about major miner Freeport-McMoRan Copper & Gold
Meanwhile, even as the company positions itself for a meaningful growth spurt, shareholders continue to enjoy a semi-annual dividend that currently yields 1.8%. With its massive treasure of $900 million in cash and equivalents, HudBay's total available liquidity of $1.1 billion (and zero debt!) has the company beautifully positioned to absorb looming capital expenditures to complete mine construction at the Lalor project in Manitoba, Canada, and the Constancia mine in Peru. Still, the company will pursue some debt financing to build these mines. With the addition of these new mines, HudBay anticipates production expansion over the next 4 years of 255% for copper, 135% for precious metals, and 65% for zinc.
Though HudBay is far from a pure play on zinc, its low-cost zinc production nonetheless played a positive role in developing my own rationale for investing in the 85-year-old mining company. Similarly, although my staunchly bullish long-term outlooks for copper and metallurgical coal formed the core of my investment thesis for Teck Resources
Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He Tweets. He owns shares of HudBay Minerals and Teck Resources. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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